Economy -- Turning The Tide

February 19, 2009

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers,and Brad Johnson

ECONOMY

Turning The Tide

Speaking Wednesday in Mesa, AZ -- a giant Phoenix suburb that is a "poster child for foreclosure" -- President Obama announced a plan to "help as many as nine million American homeowners refinance their mortgages or avert foreclosure. He asserted his plan would shore up housing prices, stabilize neighborhoods and slow a downward spiral that was 'unraveling homeownership, the middle class and the American Dream itself.'" In addition to an investment of $200 billion for "strengthening confidence in Fannie Mae and Freddie Mac," the Homeowner Affordability and Stability Plan will "pour more than $75 billion into arresting one of the root causes of the nation's economic spiral" by helping homeowners obtain more affordable mortgage terms. This housing plan is the final leg of what Obama has "called a 'three-legged stool' aimed at fixing the nation's crumbling economy": restoring the health of the job, credit, and housing markets. The $789 billion economic recovery plan signed into law on Tuesday is expected to "create or save three and a half million jobs over the next two years." Treasury Secretary Timothy Geithner "unveiled a restructured plan to aid the ailing financial system" last week with more accountability and "limits on bankers' bonuses." Only a combined government effort on all three fronts "has a chance" of turning the tide for the shrinking economy.

STAGES OF FAILURE: Center for American Progress analysts Andrew Jakabovics and David Abramowitz say that the recognition that "stopping foreclosures is good for all homeowners and the economy overall" is "long overdue." They explain that the Bush administration went through "various stages of failure" instead of taking action on the staggering rise in home foreclosures that began in 2006. "First came denial" in 2007: "Bush administration policymakers insisted that the problem was small and the economy largely immune from troubles affecting the subprime loan sector." With foreclosures rising in early 2008, Bush officials decided to "blame the victim" and wait for the magic of the market to kick in: "The Bush administration’s message was mainly that the culprits were unscrupulous borrowers who needed to be punished for their moral failures by withholding of any help." Then, as "foreclosures surged" and credit markets collapsed in 2008, "laissez-faire policies morphed into power grabs and bailouts for buddies." Throughout, "vastly more attention was paid to the woes of the banking system" than to homeowners, considered "either the bad guys, or at most irrelevant to fixing the problem." Further, Bush's Treasury Secretary, Henry Paulson, ignored explicit direction from Congress to claim he didn't have the authority to address bad home loans; "essentially none of the available hundreds of billions of dollars worth of TARP funding went to stop foreclosures." Paulson even rebuffed the chair of the Federal Deposit Insurance Corporation, Sheila Bair, when she requested $24.4 billion in Nov. 2008 "to create and implement an effective system of foreclosure-preventing modifications." As recently as Jan. 10, Paulson was still "reluctant to move ahead with a foreclosure plan," claiming it would not give "maximum bang for the buck."

LIGHT YEARS AHEAD: The Obama administration's housing plan, Jakabovics told Mother Jones magazine's Nick Bauman, is "light years ahead of anything we saw coming out of the Bush administration." The plan has three major components. The first, dubbed "Refinancing for Responsible Homeowners," will allow "homeowners with Fannie Mae and Freddie Mac mortgages who owe between 80 and 105 percent of what their homes are worth to refinance those mortgages" -- helping about 4 to 5 million people to keep their homes. The second part is the $75 billion "Homeowner Stability Initiative," which is more complex, Bauman writes, "encouraging banks to work with homeowners to modify existing mortgages, which is different from refinancing." If a bank takes financial incentives and "absorbs whatever loss it took to get the borrowers to a 38 percent debt-to-income ratio" in monthly payments, the government will help reduce payments down to 31 percent. Although technically a voluntary program, this public-private partnership to help 3 to 4 million homeowners will be compulsory for any bank tapping the $700 billion Troubled Asset Relief Program, and will become "accepted as standard industry practice," write Jakabovics and Abramowitz. The third component intends to strengthen "confidence in Fannie Mae and Freddie Mac" by spending $200 billion on the "toxic assets" of securities based on subprime and other high-default-rate mortgages. "The Obama administration will try to do this by having the Treasury Department buy up the dreaded mortgage-backed-securities from Fannie Mae and Freddie Mac," using money authorized in July 2008 for this purpose but unused by the Bush administration. The government is "hoping to somewhat reinflate the market for those financial products" and keep money flowing for new long-term, fixed-rate mortgages for average homebuyers.

MORE WORK AHEAD: "This plan will not save every home," Obama cautioned yesterday, "but it will give millions of families resigned to financial ruin a chance to rebuild." As homeowners and local governments struggle to survive the collapse of the Bush-era housing bubble, many economists and housing experts believe more government action will be needed to right our struggling economy. "This is a major step forward to addressing the foreclosure crisis," said John Taylor, president of the National Community Reinvestment Coalition. "But the plan may not be aggressive enough." There are "between 10 million and 15 million homeowners" who are "underwater," with mortgages costing more than the present value of their property. "We can protect homeowners by simply giving them the right to stay in their home as renters following foreclosure," recommends economist Dean Baker. An "own-to-rent" program is "a simple, costless and bureaucracy-free solution, but it screws the banks." While most of the plan can be implemented through executive branch authority alone, "there is one facet that needs Congressional approval," The Wonk Room's Pat Garafolo explains: "Changing a bankruptcy law to allow judges to 'cram down' mortgage payments for troubled homeowners." Weeks ago, Congressional Republicans justified opposition to the economic recovery plan, saying it was "leaving the housing crisis out of the equation," which Sen. John Ensign (R-NV) called "the underlying cancer." Conservatives "now have an opportunity to help advance a comprehensive solution to the very problem they claimed was being ignored." It remains to be seen whether they will rediscover bipartisanship in order to help millions of Americans save their homes.

SCIENCE -- RESEARCHERS PREPARE FOR OBAMA TO REVERSE FEDERAL BAN ON STEM CELLS: Officials at the National Institutes of Health (NIH) have started to draft new guidelines regarding embryonic stem cells as they anxiously wait for President Obama to reverse the Bush administration's policy banning federal funding of the research. Obama, who pledged to end the ban during his campaign, recently told House Democrats, "I guarantee you that we will sign an executive order" overturning the limits on stem cell research. "God gave us [the] power to make smart decisions to cure diseases, to alleviate suffering," he said. Asked on Fox News Sunday this past week about the new administration's plans to overturn the Bush-era ban, senior Obama adviser David Axelrod said, the "President is considering" lifting the ban "right now" and action will be taken "soon." The NIH believes that it "could approve the first supplemental grants to current grantees to study new cell lines within four months and the first new grants within six to nine months" of the ban's reversal. "We want to be able to move as quickly as possible," said Story Landis, who is in charge of the NIH's stem cell task force. "The science is waiting."

RADICAL RIGHT -- UTAH STATE SENATOR SAYS GAY PEOPLE ARE 'THE GREATEST THREAT TO AMERICA': In January, according to a recent leak, state Sen. Chris Buttars (R) gave an interview with a local ABC affiliate in which he compared gays to alcoholics and Muslim terrorists, and warned that gay people are "probably the greatest threat to America." "To me, homosexuality will always be a sexual perversion," Buttars said, adding, "They say, I'm born that way. There's some truth to that, in that some people are born with an attraction to alcohol." Buttars later called gays "the meanest buggers I ever seen." Gays are "probably the greatest threat to America going down I know of," he said. Buttars also praised former President Bush because he allegedly "saved" America "for the foreseeable future" by appointing conservatives to the Supreme Court. Yesterday a Utah state House committee defeated a bill that would have granted same-sex couples rights of inheritance and medical decision-making, following the defeat of bills that would have allowed gay adoption and protected gays from housing and employment discrimination

RELIGION -- SANTORUM IGNORANTLY REFERS TO THE LANGUAGE OF THE QUR'AN AS 'ISLAMIC': Earlier this week, former Sen. Rick Santorum (R-PA) delivered "a lecture on Islam" at the University of Nebraska-Lincoln. Santorum argued that the American public knows too little about the Islamic faith, and to prove his point, he asked the students whether they knew the difference between Sunnis and Shi'as. Only three audience members raised their hands. Santorum said that "he believes Muslims' religious views cannot be changed or altered, so Middle Easterners reject American, democratic ideals. 'A democracy could not exist because Mohammed already made the perfect law.'" Ironically, Santorum betrayed his own ignorance of Islam by declaring that Muslims believe that the "Quran is perfect just the way it is, that's why it is only written in Islamic." As a self-anointed scholar of Islam, it's surprising that Santorum would assert that the Qur'an is "written in Islamic." It is, of course, originally written in Arabic. Islam is not a language, but rather a religion. Santorum concluded, "I think that if every citizen was fully informed about the war, it would create a commonality between faiths." Indeed, much work remains to be done.

"Senator Burris should consider resigning for the good of his state," writes the New York Times editorial board, a day after the Washington Post called for Burris to step down. The Chicago Tribune today calls on Gov. Pat Quinn (D-IL) to propose a special election to fill Burris' seat, should it open.

Canadians are "abuzz" about President Obama's visit today, his first foreign trip as president. According to the CBC, "People started gathering in front of Parliament Hill before sunrise" in anticipation of Obama's touchdown at 10:30 a.m. ET in Ottawa. Afghanistan and the economy top the agenda for Obama’s meeting with Prime Minister Stephen Harper.

Gen. David McKiernan, the top U.S. commander in Afghanistan, said yesterday that the U.S. "will have to keep about 60,000 troops in Afghanistan for at least the next three to four years to combat an increasingly violent insurgency." McKiernan said that an additional 10,000 troops will be needed beyond the 17,000 President Obama ordered to Afghanistan this week.

The Iraqi journalist who threw his shoes at President Bush last year told a Baghdad court yesterday that he was coerced into making a false confession of making a terrorist training film. "I said this before the guards of the prime minister after I was beaten and after my body was devoured by electricity," Muntazer al-Zaidi said. He said Bush's "icy smile" "enraged" him. "I felt that this person is the killer of the people, the prime murderer," he said.

"A handful of Republican governors are considering turning down some money from the federal stimulus package," which "opponents say puts conservative ideology ahead of the needs of constituents struggling" through the recession. Some governors, like Rick Perry of Texas and Mark Sanford of South Carolina, have opposed the stimulus, but eventually admitted they would take the money.

RNC Chairman Michael Steele says he is planning an "off the hook" PR offensive to attract younger voters, especially minorities, by applying conservative principles to "urban-suburban hip-hop settings." "[W]e need to uptick our image with everyone, including one-armed midgets," he explained.

"Nearly half of those surveyed said they worry about becoming unemployed -- almost double the percentage at this time last year," a new AP-GfK poll finds. Additionally, 71 percent of those surveyed said that "they know someone -- a friend or a relative -- who has lost a job in the past six months because of the economy."

Yesterday a federal appeals court blocked the transfer to the U.S. of 17 Chinese Muslims who are currently being held at Guantanamo Bay but are no longer designated "enemy combatants." The decision "reversed a lower court ruling that ordered the government to release the 17 Uighurs and resettle them with Uighur families in the Washington region."

And finally: Washington, DC's historic Mayflower Hotel attracted considerable attention last year, when it was revealed as the place that former New York governor Eliot Spitzer had his infamous tryst with an escort. The DC Examiner now reports that Spitzer’s dad, Bernard, is coincidentally "attempting to purchase the office building at 1615 L Street NW -- which happens to overlook the Mayflower Hotel." Bernard is allegedly "awaiting his lender's approval on the building."

"The Environmental Protection Agency is expected to act for the first time to regulate carbon dioxide and other greenhouse gases that scientists blame for the warming of the planet, according to top Obama administration officials."

THINK PROGRESS: PBS's Gwen Ifill responds to NPR's Juan Williams: People should "make a better effort to know what they're talking about."

WONK ROOM: Former Secretary of Labor Robert Reich: If consumers "have to rely on their sinking wages, the entire economy is in trouble."

YGLESIAS: Washington Post editorial page editor Fred Hiatt refuses to correct dishonest climate change columns wihle lecturing Congress on how to handle climate change.

MEDIA MATTERS: Fox News special "Trillion with a T" promotes myths and falsehoods about the economic recovery bill.

ALASKA: "Gov. Sarah Palin must pay income taxes on thousands of dollars in expense money she received while living at her Wasilla home."

FLORIDA: Gov. Charlie Crist (R), who supported the economic recovery package, receives a standing ovation at a town hall meeting.

NORTH DAKOTA: "North Dakota's House of Representatives has passed a bill effectively outlawing abortion."

"Unfortunately, this bill stimulates the debt, it stimulates the growth of government, but it doesn't stimulate jobs."
-- Sen. Kit Bond (R-MO), 2/10/09, on the recovery package

VERSUS

"This is the type of emergency stimulus spending we should be supporting -- programs that will create jobs now and help families."
-- Bond, 2/17/09

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